China Properties Gro : Announcements and Notices - [Connected Transaction / Issue of Convertible Securities / Issue of Shares under a Specific Mandate] CONNECTED TRANSACTION PROPOSED ISSUE OF A CONVERTIBLE NOTE

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
This announcement appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the Shares described below.

CHINA PROPERTIES GROUP LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1838)

CONNECTED TRANSACTION

PROPOSED ISSUE OF A CONVERTIBLE NOTE

On 27 January 2012, the Company and the Subscriber entered into a conditional subscription agreement pursuant to which the Company has agreed to issue and the Subscriber has agreed to subscribe for a convertible note of HK$500 million in cash.
Assuming the exercise in full of the conversion rights attaching to the Convertible Note at the conversion price of HK$2.42 per Share, a total number of 206,611,570 new Shares will be issued pursuant to such conversion.
The net proceeds from the issue of the Convertible Note of approximately HK$499 million will be used for general working capital of the Group.
Given that the Subscriber is a substantial shareholder of the Company and is wholly owned by Mr. Wong Sai Chung (who is the managing Director), the entering into of the Subscription Agreement by the Subscriber constitutes a connected transaction of the Company under the Listing Rules subject to reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules. In addition, under Rule 13.36(1)(a) of the Listing Rules, the consent of shareholders in general meeting of the Company shall be obtained prior to the Directors allotting and issuing securities convertible into shares of the Company. An extraordinary general meeting will be convened to propose a resolution to approve the Subscription Agreement, the issue of the Convertible Note and the allotment and issue of the Conversion Shares upon the exercise of the conversion rights attaching to the Convertible Note, on which the Subscriber and its associates and Mr. Wong Sai Chung will abstain from voting.
- 1 -
The Board has appointed Mr. Warren Talbot Beckwith, Mr. Luk Koon Hoo, Mr. Garry Alides Willinge, Mr. Cheng Chaun Kwan, Michael and Mr. Wu Zhi Gao (being all the independent non-executive Directors) to form an independent board committee to advise the Independent Shareholders as to whether the terms of the Subscription Agreement are fair and reasonable and whether the transaction under the Subscription Agreement is in the interest of the Company and the Shareholders as a whole. The Company will appoint an independent financial adviser to provide advice to the Independent Board Committee and to the Independent Shareholders on the Subscription Agreement and the transaction thereunder.
A circular containing, among other things, further details of the Subscription Agreement and the Convertible Note, a letter of advice from the independent financial adviser to the Independent Board Committee and the Independent Shareholders, the recommendations from the Independent Board Committee to the Independent Shareholders and the notice of the EGM is expected to be despatched by the Company to the Shareholders by 17 February
2012, the fifteenth Business Day after the date of this announcement.
I. SUBSCRIPTION AGREEMENT DATED 27 JANUARY 2012
1. Parties
Issuer: The Company's principal activity is investment holding. The Group is principally engaged in property development in the PRC focusing on developing and creating high quality, large- scale residential and commercial projects in strategic locations in the PRC.
The Subscriber: Hillwealth Holdings Limited, a company incorporated in the British Virgin Islands. The Subscriber is wholly owned by Mr. Wong Sai Chung, the managing Director. The Subscriber's principal business is investment holding.
2. The Convertible Note
Pursuant to the Subscription Agreement, the Company has agreed to issue and the Subscriber has agreed to subscribe for the Convertible Note of HK$500 million in cash.
Subject to the Conditions Precedent and on Completion, the Subscriber shall subscribe for the Convertible Note and shall pay or procure that there be paid to the Company the Subscription Money. The Subscription Money may be satisfied on Completion by way of new funds paid to the Company and/or settlement against funds previously advanced by the Subscriber, Mr. Wong Sai Chung or any of his associates to the Company.
Under the Facility Agreement with China Development Bank Corporation, Hong Kong Branch, the Company shall not have any outstanding financial indebtedness provided to it by any shareholder of the Company or any of its subsidiaries, except where such financial indebtedness is subordinated to the Facility pursuant to a subordination deed in the form as set out in the Facility Agreement. The Subscriber agrees that the Convertible Note and all amounts payable under the Convertible Note
- 2 -
(including interest payments) shall be subordinated to the Facility, and agrees to enter into a subordination deed in respect of the Convertible Note forthwith after Completion has taken place.
3. Principal terms of the Convertible Note
(A) The terms of the Convertible Note were arrived at after negotiations between the Company and the Subscriber and the principal terms of which are summarised below:
Principal amount: HK$500 million
Interest: 5% per annum accrued from the date of issue on a day to day basis on the principal amount of the Convertible Note outstanding, payable in arrears on the second anniversary of the date of issue of the Convertible Note and thereafter annually on the anniversary of such date.
Maturity: The Company shall repay the principal amount outstanding under the Convertible Note to the Noteholder together with all interest accrued on the fourth anniversary of the date of the issue of the Convertible Note.
Completion date: the 5th Business Day following the date on which the Conditions Precedent are fulfilled or such other date as the Company and the Subscriber may agree for the issue of Convertible Note.
Conditions precedent: the conditions precedent set out in the section headed
''Conditions Precedent'' of this announcement. (see
Section 4)
Conversion price: HK$2.42 per Share. The conversion price is subject to adjustment for, among other matters, subdivision or consolidation of Shares, capital distribution of profits or reserves, rights issues and other issues at less than 90% of the market price of the Shares.
- 3 -
Conversion period: after full repayment of the loan principal and all outstanding accrued interest under the Facility Agreement or the date falling 36 months from the first date a loan is made under the Facility Agreement (whichever is earlier), the Noteholder will have the right to convert the whole or part of the principal amount of the Convertible Note into Shares at any time and from time to time up to the fourth anniversary of the date of issue of the Convertible Note in amounts of HK$10,000,000 or its integral multiples on each conversion, save that if at any time, the principal outstanding amount of the Convertible Note is less than HK$10,000,000, the whole (but not part only) of the principal amount of the Convertible Note may be converted, subject to the conditions that any conversion will (i) not trigger the mandatory offer obligation under rule 26.1 of the Takeovers Code and (ii) not result in the Company not fulfilling the public float requirements under rule 8.08 of the Listing Rules.
Ranking of the
Conversion Shares:
Shares issued upon conversion shall rank pari passu in all respects with all other existing Shares outstanding at the date of the conversion notice and be entitled to all dividends and other distributions the record date of which falls on a date on or after the date of the conversion notice.
- 4 -
Transferability: Subject to the compliance with any applicable requirements of the Stock Exchange (including the Listing Rules), and apart from the transfer or assignment of the Convertible Note to Mr. Wong Sai Chung or any of his associates, any transfer or assignment of the Convertible Note shall be subject to the prior written consent of the Company. The Convertible Note shall only be assigned or transferred in amounts of HK$10,000,000 or its integral multiples on each assignment or transfer, save that if at any time, the principal outstanding amount of the Convertible Note is less than HK$10,000,000 the whole (but not part only) of the principal outstanding amount of the Convertible Note may be assigned or transferred, provided always that pending full repayment and/or settlement of all amounts due by the Company under the Facility Agreement, if the Convertible Note is to be transferred or assigned (in whole or in part) to a person who is a shareholder of the Company or a member of the Group, the Convertible Note may only be transferred or assigned subject to such person entering into a subordination deed to subordinate all or part of the Convertible Note to be transferred or assigned and all amounts payable thereunder (including interest payments) to the Facility as a precondition to such transfer or assignment.
Voting: The Noteholder will not be entitled to attend or vote at any meeting of the Company by reason of it being the Noteholder.
Listing: No application will be made for the listing of the Convertible Note on the Stock Exchange. An application will be made for the listing of Shares to be issued on exercise of the conversion rights attaching to the Convertible Note.
(B) The conversion price of HK$2.42 per Share was determined based on the average closing price of HK$2.416 per Share as quoted on the Stock Exchange for the five consecutive trading days up to and including 26 January 2012 respectively, and represents a premium of approximately 1.26% to the closing price of HK$2.39 per Share quoted on the Stock Exchange on 26 January 2012. The net proceeds from the subscription is estimated to be approximately HK$499 million (assuming the exercise in full of the conversion rights attaching to the Convertible Note at the conversion price of HK$2.42 per Share), the net price to the Company of each subscription Share is approximately HK$2.4152.
- 5 -
4. Conditions Precedent
The subscription of the Convertible Note is conditional upon the fulfillment of the following conditions precedent:
(a) the Listing Committee of the Stock Exchange having granted (either unconditionally or subject only to conditions to which neither the Company nor the Subscriber shall reasonably object) listing of and permission to deal in the Conversion Shares;
(b) the Independent Shareholders having approved at an EGM (i) the entering into of the Subscription Agreement, (ii) the issue of the Convertible Note and the allotment and issue of the Conversion Shares upon the exercise of the conversion rights attaching to the Convertible Note, (iii) in the case that all or part of the Convertible Note is transferred or assigned to Mr. Wong Sai Chung or any of his associates, the allotment and issue of the Conversion Shares to Mr. Wong Sai Chung or his relevant associates (as the case may be) upon the exercise of the conversion rights attaching thereto and (iv) all transactions as may be contemplated under the Subscription Agreement; and
(c) other necessary approvals, consents or authorisation for the entering into of the Subscription Agreement and the transactions contemplated thereunder (if any) having been obtained.
If the above conditions are not fulfilled on or before the date falling three months after the date of the Subscription Agreement or such later date as may be agreed between the Subscriber and the Company, the Subscription Agreement will lapse.
5. Use of proceeds and fund raising activities in the past twelve months
The net proceeds from the issue of the Convertible Note of approximately HK$499 million will be used for general working capital of the Group.
The Company did not conduct any fund raising activities during the past twelve months immediately preceding the date of this announcement.
6. Reasons for and benefits of the Subscription Agreement
The Directors consider that the issue of the Convertible Note represents a good opportunity to strengthen the cash position of the Group under the uncertainty of obtaining alternative financing in the current market conditions and the depressed property market conditions in the PRC. Having considered the aforesaid and given that the cost of obtaining alternative financing is rather high and the current market conditions for financing are tight, the Directors (excluding the independent non- executive Directors who will express their view after considering the advice from the Independent Financial Adviser) consider that the terms of the Subscription Agreement are fair and reasonable and the entering into of the Subscription Agreement is in the interests of the Company and the Shareholders as a whole.
- 6 -
7. Listing Rules Implications
Given that the Subscriber is a substantial shareholder of the Company and is wholly owned by Mr. Wong Sai Chung (who is the managing Director), the entering into of the Subscription Agreement by the Subscriber constitutes a connected transaction of the Company under the Listing Rules subject to the reporting, announcement and independent shareholders' approval requirements under Chapter 14A of the Listing Rules. In addition, under Rule 13.36(1)(a) of the Listing Rules, the consent of shareholders in general meeting of the Company shall be obtained prior to the Directors allotting and issuing securities convertible into shares of the Company. An EGM will be convened at which an ordinary resolution will be proposed to approve (i) the entering into of the Subscription Agreement, (ii) the issue of the Convertible Note and the allotment and issue of the Conversion Shares upon the exercise of the conversion rights attaching to the Convertible Note, (iii) in the case that all or part of the Convertible Note is transferred or assigned to Mr. Wong Sai Chung or any of his associates, the allotment and issue of the Conversion Shares to Mr. Wong Sai Chung or his relevant associates (as the case maybe) upon the exercise of the conversion rights attaching thereto and (iv) all transactions as may be contemplated under the Subscription Agreement, on which the Subscriber and its associates and Mr. Wong Sai Chung will abstain from voting.
The Board has appointed Mr. Warren Talbot Beckwith, Mr. Luk Koon Hoo, Mr. Garry Alides Willinge, Mr. Cheng Chaun Kwan, Michael and Mr. Wu Zhi Gao (being all the independent non-executive Directors) to form an independent board committee to advise the Independent Shareholders as to whether the terms of the Subscription Agreement are fair and reasonable and whether the transaction under the Subscription Agreement is in the interest of the Company and the Shareholders as a whole. The Company will appoint an independent financial adviser to provide advice to the Independent Board Committee and to the Independent Shareholders on the Subscription Agreement and the transaction thereunder.
A circular containing, among other things, further details of the Subscription Agreement and the Convertible Note, a letter of advice from the independent financial adviser to the Independent Board Committee and the Independent Shareholders, the recommendations from the Independent Board Committee to the Independent Shareholders and the notice of the EGM is expected to be despatched by the Company to the Shareholders by 17 February 2012, the fifteenth Business Day after the date of this announcement.
II. SHAREHOLDING OF THE SUBSCRIBER IN THE COMPANY
Assuming the exercise in full of the conversion rights attaching to the Convertible Note at the conversion price of HK$2.42 per Share, a total number of 206,611,570 new Shares will be issued, representing approximately 11.42% of the Company's existing issued share capital of 1,809,077,000 Shares and approximately 10.25% of the Company's issued share capital of 2,015,688,570 Shares as enlarged by the issue and allotment of such new Shares. An ordinary resolution will be proposed at the EGM to seek, among other things, a specific mandate for the allotment and issue of the Conversion Shares.
In that event, the Subscriber shall become directly interested in a total of 1,556,611,570
Shares, being approximately 86.04% of the Company's existing issued share capital of
1,809,077,000 Shares and approximately 77.22% of the Company's issued share capital of
- 7 -
2,015,688,570 Shares as enlarged by the issue and allotment of such new Shares. However, it should be noted that the right of the Noteholder to convert the whole or part of the principal amount of the Convertible Notes is subject to the conditions that any conversion will (i) not trigger the mandatory offer obligation under rule 26.1 of the Takeovers Code and (ii) not result in the Company not fulfilling the public float requirements under rule
8.08 of the Listing Rules.
III. EFFECT OF FULL CONVERSION OF THE CONVERTIBLE NOTE
Set out below are the shareholding structures of the Company (i) as at the date of the Subscription Agreement; (ii) immediately after full conversion of the Convertible Note (assuming that there is no change in the issued share capital of the Company other than the issue of the Conversion Shares since the date of the Subscription Agreement up to the date of full conversion of the Convertible Note);
As at the date of the
Subscription Agreement
Approximate
Immediately after full conversion of the
Convertible Note
Approximate
Name of Shareholders
Number of
Shares held
percentage of shareholding
Number of
Shares held
percentage of shareholding
(Shares) (%) (Shares) (%)
The Subscriber 1,350,000,000 74.62 1,556,611,570 77.22 (Note 1)
Other Shareholders 459,077,00025.38459,077,00022.78
Total: 1,809,077,000 100 2,015,688,570 100

Note(s):

(1) It should be noted that the right of the Noteholder to convert the whole or part of the principal amount of the Convertible Notes is subject to the conditions that any conversion will (i) not trigger the mandatory offer obligation under rule 26.1 of the Takeovers Code and (ii) not result in the Company not fulfilling the public float requirements under rule 8.08 of the Listing Rules.

IV. DEFINITIONS
In this announcement, the following expressions have the following meanings unless otherwise requires.
''associates'' have the meaning ascribed to under the Listing Rules
''Board'' the board of Directors
''Business Day'' a day (excluding Saturday) on which banks in Hong Kong are generally open for business
''Company'' China Properties Group Limited, a company incorporated in the Cayman Islands with limited liability and the shares of which are listed on the main board of Stock Exchange
''Completion'' completion of the Subscription Agreement
- 8 -
''Conditions
Precedent''
the conditions precedent set out in section 4 headed ''Conditions
Precedent'' of this announcement
''Convertible Note'' the convertible note of HK$500 million to be issued by the
Company to the Subscriber
''Conversion
Share(s)''
new Share(s) to be allotted and issued to the Noteholder upon exercise of the conversion rights attached to the Convertible Note
''Directors'' the directors of the Company
''EGM'' the extraordinary general meeting of the Company to be convened for considering and, if thought fit, to approve the Subscription Agreement and the transactions contemplated thereunder
''Facility'' the term loan facility made or to be made available under the Facility Agreement, as the same may be reduced, varied or cancelled in accordance with the terms of the Facility Agreement
''Facility Agreement'' the facility agreement dated 22 October 2010 and entered into between the Company (as borrower), China Development Bank Corporation, Hong Kong Branch (as lender) and the parties listed in Schedule 1 (Original Guarantors) to the facility agreement in relation to a US$300,000,000 term loan facility
''Group'' the Company and its subsidiaries
''HK$'' or ''HKD'' Hong Kong dollars
''Hong Kong'' the Hong Kong Special Administrative Region of the PRC
''Independent Board
Committee''
the independent Directors appointed as the members of an independent committee of the Board to advise the Independent Shareholders on the Subscription Agreement and the transactions contemplated thereby
''Independent
Shareholders''
the shareholders of the Company, other than the Subscriber and its associates together with Mr. Wong Sai Chung and, if any, any other Shareholder who has a material interest and is required to abstain from voting at the EGM pursuant to the Listing Rules
''Listing Rules'' the Rules Governing the Listing of Securities on the Stock
Exchange
''Mr. Wong Sai
Chung''
Mr. Wong Sai Chung, the legal and beneficial owner of the
Subscriber and the managing Director
''Noteholder'' the person who is for the time being the holder of the Convertible
Note
''PRC'' People's Republic of China
- 9 -
''RMB'' Renminbi, the lawful currency of the PRC
''Share(s)'' share(s) of HK$0.10 each in the share capital of the Company
''Shareholders'' the shareholders of the Company
''Stock Exchange'' The Stock Exchange of Hong Kong Limited
''Subscriber'' Hillwealth Holdings Limited, a company incorporated in the
British Virgin Islands and wholly owned by Mr. Wong Sai Chung
''Subscription
Agreement''
the conditional subscription agreement dated 27 January 2012 entered into between the Company and the Subscriber in relation to subscription for the Convertible Note
''Subscription
Money''
HK$500 million, being the subscription money for the
Convertible Note
''substantial
shareholder''
have the meaning ascribed to it under the Listing Rules
''Takeovers Code'' the Codes on Takeovers and Mergers and Share Repurchases issued by the Securities and Futures Commission (as amended from time to time)
''US$'' US dollars, the lawful currency of the United States of America
''%'' per cent.
By Order of the Board
China Properties Group Limited Dr. Wang Shih Chang, George Chairman
Hong Kong, 27 January 2012
As at the date of this announcement, the Board of the Company comprises Dr. Wang Shih Chang, George, Mr. Wong Sai Chung and Mr. Xu Li Chang as executive Directors, Mr. Kwan Kai Cheong as non-executive Director and Mr. Warren Talbot Beckwith, Mr. Luk Koon Hoo, Mr. Garry Alides Willinge, Mr. Cheng Chaun Kwan, Michael and Mr. Wu Zhi Gao as independent non-executive Directors.
- 10 -